SHARP TURN for San Elijo Hills Real Estate…Welcome Back to a Seller’s Market! By Nicolas Jonville
SHARP TURN for San Elijo Hills Real Estate…Welcome Back to a Seller’s Market!
By Nicolas Jonville
In June of last year, we wrote an article for the Fountain to inform our community of the return of the “multiple offer trend”. Five years after the big burst, with property values dropping nearly 30% from their peak levels in areas, the demand was starting to exceed the supply. Well, this trend is more than confirmed today and the San Elijo Hills real estate market, along with most of Southern California and other parts of the US, has made a sharp turn… for the betterment of homeowners.
In real estate, one of the main indicators that determine a seller or a buyer’s market is called the Absorption Rate…how many months it will take to sell the homes for sale in the area, at the current rate they are selling.
In 2008/2009, the Absorption Rate in San Elijo Hills was as high as 9 months, which means it was taking an average of 9 months to sell through the inventory. In June 2012, it was closer to 3 months, which is definitely more of a seller’s market (the balance between a seller’s market and a buyer’s market is about 6 months of inventory).
Today, early 2013, our community real estate market is experiencing much less than a one month supply, a definite seller’s market. Properties entering the market are often seeing multiple offers within days.
The number of properties for sale has dramatically decreased compared to last year, in addition to the increase of demand for properties, creating a large gap that is fueling price increases.
The real estate market is cyclical – which is why you may have heard the term “real estate cycle.” Several key factors influence this cycle, including interest rates, employment growth, investment growth, construction among other factors.
Nearly all of the indicators are supporting the higher demand for real estate:
• Interest rates are at historic low levels, as low as 3.5% for a 30 year fixed loan. This allows more buyers to qualify for a loan and allows for higher loan amounts.
• Lenders’ guidelines remain much more stringent than in 2003-2007, but have been easing. Buyers can qualify to purchase with as little as 3.5% down, or 0% down
for VA loans! It is now even possible to buy with 10% down without the cost of mortgage insurance.
• Employment has improved: 8.1% unemployment in San Diego County in 12/2012 compared with 9.3% in July 2012 (U.S. Bureau of Labor Statistics). Fewer people unemployed means more potential buyers… and less people struggling with their payments, therefore less distressed properties on the market for sale (bank owned and short sales).
• The level of new construction available for sale is close to an all time low nationally! Due to the financial meltdown a few years ago, many local and national builders slowed down or stopped their investments and projects. Today, builders are not able to meet the current levels of demand (nationally, new home construction is nearly a third of what it has been on average since 1968 – a 50 year low for new homes last year).
• Programs are available to assist homeowners facing financial hardship to avoid foreclosure, i.e. loan modification, refinance, short sale.
• Rents have been increasing and cost of ownership is currently becoming more affordable than renting.
Looking at the current situation, rates are at an all time low.
Real estate prices are experiencing strong increases with more buyers and less properties available for sale. Following is a price study for an average 2,250 SF home and a 1,425 SF condo, early 2011 v/s early 2012 v/s early 2013.
Is this a long term trend? Many factors are affecting the market, but many
market analysts predict that the recovery is well under way. Several wild cards remain…
• Interest rates: If rates were to spike by 1or 2 percent, this would most likely
cool down the recovery, and sharp rate increases are always a possibility.
• Appraisal: Most buyers are financing their purchase and the lender will often require an appraised value at or above the negotiated purchase price. This may become an issue in situations where overbidding pushes the price above the appraised value.
• Economy and unemployment: If the economy does not continue to
improve, the demand may be impacted, which would affect the market.
When buying or selling a home, whether traditional or short sale, there are many components to consider in order to make an informed decision and complete a successful transaction. From appropriate pricing to strong marketing, negotiations to appraisal, these aspects need to be handled with care and expertise by professionals who are dedicated to your best interest and are knowledgeable of the market specifics. Our local presence, knowledge of the market and strong marketing program has been key to our clients’ success. We have closed over 500 transactions to date in San Elijo Hills/OCR and look forward to discussing the current market and assisting you with your questions and plans.